Financial Management 101

A friend was asking how we manage our budget, and after I re-read the email I sent to her, I realized that it might make a useful blog post.  If you already have a budget which is working for you, you don't need to read this.  However, if you make money, AND you spend money, AND you don't have a budget, AND you find that you are constantly stressed about money, then hopefully you'll find something here which will help.  Budgeting is the single most effective method I have found toward stress-free money management.  It doesn't have to be perfect; just start with what you know, and build from there.

Here's our top 3 tools we use for successful management of our finances:

1. Quicken¹

For entering all of our expenses, I have found no other software which comes close to being as useful as Quicken (and I've tried lots of 'em).  It's pretty much the standard, which should give you confidence that it will probably provide solutions to most of your needs.  It does have budgeting built in, which is nice because you can see how your actual spending compares to your budgeted spending, and adjust accordingly.  However, we don't use the budgeting feature (I'll describe why in a moment), but we take heavy advantage of the entering transactions and account reconciliation, account management, and calendar scheduling of recurring transactions.  The calendar is really nice, because you can look ahead to see what each week's anticipated balance will be.  And if you use it for more than a year, you'll be amazed at the things you can learn by running reports on spending per category (very useful when making a budget).

One other feature I like about Quicken is "savings goals" (which I think is only available if you get the Deluxe version).  These are virtual accounts which only exist in Quicken, and you can "transfer" money from one account into your savings goal account.  For example, say we wanted to purchase a piano (which we do). Let's say it costs us $1000.  We setup a savings goal called Piano for $1000, and put a "due date" of 6 months on it.  Quicken will figure out how much we need to save each month, and automatically setup reminders in the calendar.  Then we "transfer" $167 each month from checking into the piano account.  Quicken will then show my checking balance as $167 less, even though technically it is there.  It's just a nice way to allocate money for something without accidentally spending it, because you develop the impression of imagining it's not even available.

2. The Spreadsheet

We actually have created our "budget" in a spreadsheet program, and broke up each category by the following columns: annually, bi-annually, quarterly, monthly, per paycheck, weekly, and percentage of our total income.  I find this much easier to navigate around and update, and we print out a new copy anytime we make changes to it.  Then, we basically don't spend anything that doesn't already correspond to a budgeted "category," and in addition, we force ourselves never to exceed the budgeted amount.  If for some reason we have to exceed a budgeted amount (say we're visiting St. Louis and we have to eat out often to see our friends), then we pull the money from another category (in this case, groceries).  We have a emergency savings account explicitly for those miscellaneous items which we were unable to forsee, or that don't have a place in our budget.  And we have left a little wiggle room in our budget for "play money" — a little allowance we each get every paycheck, which we can spend how ever we want (in my case, it often goes toward chocolate).  Because a spreadsheet is infinitely flexible, we can make separate sheets with conclusions.  For example: how much "play" money we have each paycheck; making sure our budgeted tithing at least equals 10%; and so on.  You can't do things like that in Quicken (at least, not without taking a course on how to use their reporting system, which is very robust).

We use Numbers² (a Mac program), but have also used Excel (available on both Windows and Macintosh).  Use what you like and with what you are familiar.

3. Remember the Milk³ (RTM)

This is a free online tool which is basically a glorified todo list.  I don't use it for much, but I have found it to be very useful for reminding myself when a particular expense is due.  You can setup a todo, something like "Pay mortgage of $$ by the 1st," and have it send you an email 5 days before it's due, and then set it up to repeat every month.  Easy.  We have all of our recurring expenses in here (it mirrors our Quicken calendar), and I have never missed any payments.  In fact, we even have all of our little tithing reminders in here too.

Caveat: I "should" be able to do all this in Quicken, since I already have the recurring payments setup in the Quicken calendar.  I just haven't figured out how to make it send me reminders, and RTM is so stinking easy that I haven't taken the time to figure it out.  If you manage to figure it out, please let me know.

Good luck making your budget!  And always remember: "Seek first the Kingdom of God, and all these things will be added unto you."